Uncovering and Preventing Shrink

BACKGROUND: Chase-Pitkin Home & Garden, a division of supermarket chain Wegmans Food Markets, Inc., is based in Rochester, New York, and has more than 2,600 employees. Established in 1974, the company operates 15 home improvement stores in upstate New York. It also has a commercial sales division that sells commercial and industrial products to businesses, as well as an installed services division that installs home furnishings such as kitchens, baths and doors.

PLATFORMS: IBM iSeries running WebSphere.

PROBLEM SOLVED: We faced a problem known in the retail industry as shrink - an unexplained absence of product. Shrink can occur in a variety of ways, such as through theft or a clerical error in receiving. Shrink accounts for approximately 1.5 to 2.0 percent of our annual sales volume, equating to roughly $2.52 million to $3.24 million in merchandise theft each year. Setting forth a bold initiative, we sought to dramatically reduce shrink and implement a technical solution that could track merchandise at the item level, which would provide crucial insight into the factors associated with inventory shrink.

PRODUCT FUNCTIONALITY: Chase-Pitkin implemented ShowCase Suite from SPSS. It is a user-friendly, interdepartmental software solution that enabled us to track items at the SKU level and calculate shrink. ShowCase is now used corporate-wide as the source for all of our store information, which enables departments to uncover trends and make quicker, more strategic decisions. We started our implementation with the tools department, a department that represents approximately 10,000 items. Using ShowCase, we successfully identified the top 16 items that represented 50 percent of our overall shrink. By focusing on these 16 items, including monitoring them with store cameras, Chase-Pitkin managers were able to determine that shoplifters were smuggling these particular items out of our stores. These managers have since developed policies to prevent theft and improve inventory practices. As a result, shrink on these items has been reduced by more than 50 percent. Based upon the success achieved with this first department, we anticipate recouping one-half to a full percentage point of shrink within the next couple of years. After only 18 months, ShowCase has reduced theft alone by more than $550,000 company-wide. It has proven to have recurring savings each and every day. Our goal within the next three years is to reduce shrink on an ongoing basis by 1 percent or approximately $1.8 to $2.0 million.

STRENGTHS: Our former category management system only reflected departmental or category inventory, not item-level detail. With ShowCase, we have the complete package at an affordable price, as we have estimated that ShowCase paid for itself within a year. Our IT team also valued the ease with which the software was implemented, saving our organization money that otherwise would have been used to compensate consultants. Lastly, in the process of calculating shrink, our team realized that SPSS ShowCase Suite could satisfy the business needs of many different departments.

WEAKNESSES: The software was not as graphically rich as we had hoped.

SELECTION CRITERIA: We also evaluated Cognos and Bowstreet.

DELIVERABLES: In combating shrink, speed is critical. SPSS ShowCase allowed us to efficiently organize and update our data through ShowCase Warehouse Builder, analyze it from multiple perspectives using ShowCase Essbase, study the data graphically through a Web browser with ShowCase Analyzer and create presentation quality reports using ShowCase Report Writer. ShowCase has given us the ability to gain insight into conditions that are critical to our business' success. It is an advanced online analytical processing (OLAP) solution that enables us to leverage information we already had in new and more powerful ways.

VENDOR SUPPORT: SPSS has done a wonderful job by not only supporting us, but also by continuously following up on our progress. The best part of working with SPSS is their willingness to research and develop ideas from their customers.

DOCUMENTATION: The documentation is complete and easy to understand. In fact, we used very few consulting services.